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Built to Sell with Amy Balliett
54 Plays4 days ago
Join this information-packed crash-course discussion with Amy Balliett on getting your production company acquired. Amy is the founder of Killer Visual Strategies (formerly Killer Infographics), who built and successfully sold her company to Material, a global strategic consulting firm. In this episode, Amy shares detailed insights into what production company owners need to know about building for an exit strategy. Whether you’re planning to sell or merge, she breaks down essential steps like getting your finances in order and creating a growth plan that makes your business attractive to buyers.
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Transcript
Rise of In-House Production
00:00:05
Speaker
You're listening to Crossing the Axis, the podcast that explores the commercial side of film production with your host, James Kevlis.
00:00:23
Speaker
Welcome listeners, and thank you for tuning in to the show. For today's conversation, we're responding to a trend that's been building for years. And that is the fact more brands and agencies are bringing production work in-house. In fact, in-house production capabilities now account for 82% among major brands, according to recent stats.
Positioning for Acquisition
00:00:43
Speaker
You know the old saying, if you can't beat them, join them. Well, this shift might mean there's an opportunity for commercial film production companies to position themselves as acquisition ready.
00:00:54
Speaker
One of the best ways to do this is by specializing and dominating in a niche or unique focus area that makes you more attractive to agencies and brands looking to, say, streamline content creation, gain an edge in brand consistency, access your talent, upsell their offering, or expand in your area of expertise.
00:01:16
Speaker
But setting up a potential acquisition or merger means focusing on what makes your business valuable and attractive in the marketplace. This involves understanding market expectations, preparing for growth, and creating the conditions that enhance your appeal.
00:01:32
Speaker
Since these things are things you should be doing anyway, structuring your business with an exit strategy in mind might just be the force function you need to be a better business owner. That's because aiming for an exit will likely sharpen your business decisions and align your focus on essential areas, like investing in more creative talent or deepening your expertise to solve a particular problem for clients.
00:01:55
Speaker
Whether or not a sell happens, this approach makes each choice you make more intentional, reinforcing your business model to both stand up and to stand out.
Amy Balliet's Success Story
00:02:04
Speaker
So today I'm joined by Amy Balliet to help us explore whether this seemingly win-win strategy is as good as I've made it sound and how we might more accurately think about it.
00:02:15
Speaker
Amy is the founder of Killer Visual Strategies, a company she built and successfully sold to the global consulting firm, Material. And she's generously agreed to join us today to share her story and insights you might want to know about getting acquired. So Amy, welcome to Crossing the Axis.
00:02:32
Speaker
Thank you so much for having me. I'm happy to be here. All right. I have to write ask right out the gate since you've been through the acquisition process. Do you watch shows like Shark Tank or listen to podcasts like Acquired or how I built this? And do you think, oh, I see all of the red flags or you have you become some kind of human lie detector to detect the bullshit?
00:02:51
Speaker
That is a great question. And the answer is I religiously watch Shark Tank, ah especially. And definitely when I get the opportunity, I listen to a lot of different podcasts in the arena, although at the same time with it being an election year, I feel like all my podcast listening is doom listening at this point.
00:03:11
Speaker
But yeah, I mean, I watch Shark Tank like it is my job. And as I watch it, I very much will call a call out, Oh, this person doesn't know a thing they're talking about, or that product's never gonna make it. Or really, this is these are their cogs, and they really think they're going to be a successful company. So I really enjoy getting into the nitty gritty of the numbers and how Shark Tank does that. and Actually, this latest season, they're really delving into some metrics that they never have before, which is pretty exciting to watch. Granted, we're only one episode into the latest season. That's how into Shark Tank I am, but it's on again tonight, so I've got it set to record. I asked the perfect question for you. That was great.
00:03:55
Speaker
you see the matrix of acquisitions that that like a typical person doesn't see so that's why i'm actually very excited to have you on the show and i'm also excited to get into all of this with you because i've known you for quite a while and i i saw you when you.
00:04:11
Speaker
first kind of got visual, then infographics, got, sorry, killer infographics going. I even used your services. One of the things I always talk about is like niche, niche, you know, specialize and focus and kind of this thing. And you did that. I mean, there were so many agencies at the time. I don't even remember the year this was 2010, 29 or something like that. You know, there were all these kind of full service agencies and all that. And then you came up with killer infographics. yeah It was so specific. it's so But I mean, you just lit up. I mean, everybody was using you for that service. And Infographics were really starting to become a useful communication tool at the time. And I just watched you grow, Killer. I just watch saw the evolution. I saw it grow. I saw it change. I saw you you know get get acquired yourself. And your journey has been fantastic. So I'm just thrilled to have someone who I deeply admire on the show. This is going to be a fun conversation.
00:05:01
Speaker
i I really appreciate that. and i mean Honestly, I got to credit some of our growth to you. You are our first client in the public sector and it opened up a whole world for us where, gosh, we we hit a point where 30% of our clients were in the public sector because we were able to do something that other agencies couldn't really fulfill, which was focusing on visual communication and communicating very complex, you know, measures, public measures and laws, getting into even that space was really huge for us. And you were the first client who brought us into it. So you know helped us grow considerably. I'm gonna have to find, we did two infographics together. One we did was how it was called out Get a Real Job. And it was how musicians how musicians make money and the being musicians, which was really fun. That there to this day, people talk to me about that infographic, it's hanging in walls and all this kinds of stuff. And then we did a follow up on how filmmakers, you know, get a real job, how filmmakers make a living. And we broke that down too. And that was really fun. So we'll have to pull this up and revisit them.
00:06:03
Speaker
We also did why Seattle is the best music city ever seriously ever. That's right. I forgot we did that. That was a competition. we would so I forgot about that. It was Portland versus Seattle. And we needed, it was a big, du we had like an audience of hundreds. That was fun.
Journey from Ice Cream to Infographics
00:06:19
Speaker
It was a competition, but it was done in in fun because both cities are great and it was really great to do. Oh, that's great. for Thanks for reminding me of that.
00:06:27
Speaker
Oh, and I still have all of them. I actually dug them up before this, so I'll send them your way. Oh, do that, please. Yeah. So I know your journey from starting Killer Infographics, but I don't know if I know your journey to get to Killer Infographics. And like, where how did you get into this business to begin with?
00:06:43
Speaker
ah Like everything, an accident, I feel like. I feel like a lot of people accidentally stumble into entrepreneurship. so my My background's really all over the place, and I feel like a lot of millennials are this way, where their career changes every three years or so so. I can go all the way back to when I was 17 years old and I accidentally became the owner of an ice cream parlor and penny candy store.
00:07:09
Speaker
My it was this kind of summer vacation resort. yeah I say resort. You go to this place. It's not a resort. It's a place that is on Lake Erie and Vermilion, Ohio, because I grew up in Cleveland. It's a bunch of cottages that my great, great grandpa and a bunch of other people built a few hundred cottages and created this kind of getaway where people would go if they wanted to go to Cedar Point. They'd first go to this place called linwood park and stay at linwood park and then drive to cedar point with their families for a fun weekend or for a while it was a camp so when it started out it was a camp but in the center of this place at all times was this place called the stand which started out as a kind of soda fountain little pharmacy and shop
00:07:56
Speaker
for for people who are staying in this park and the board of advisors for the park are basically family shareholders. Since my great grandpa was one of the people who built the initial set of cottages, those shares transferred down through the family. 150 years later, my dad's on the board.
00:08:14
Speaker
And he has to find a new owner for this candy store. And I joked and said I would do it. And he said, or he woke me up the next morning at 7am, which is way too early for a Saturday morning for a 17 year old and took me to Key Bank to get a business loan and buy it. What a great dad.
00:08:31
Speaker
Yeah, and it was a place open Memorial Day through Labor Day because it's a summer vacation space. So I could work it, I could run it. And I was working 80 hours a week the summer of my junior year and 80 hours a week the summer of my senior year of high school running this store. And after that I said I would never run a business again because I lost two key summers of growing up basically. So I was pretty, pretty angry about it despite everything I learned.
00:08:57
Speaker
So I said I'd never run a business again. I went off to film school. I used my money from running that candy store to pay for college, as well as, you know, generous help from my parents and worked through film school as well. It worked as a waitress that whole time. Left film school and moved to Seattle and got into the film industry in Seattle here. Did a lot of video editing jobs. But in the process, I also got into marketing, which was my minor. And I started to really love marketing. And to be honest, I needed to pay the bills. So I transitioned into marketing jobs instead.
00:09:34
Speaker
And after a few years of learning everything there was to learn in those arenas, learning how to design and build websites, learning everything about motion graphics, and learning everything about SEO and online marketing, Killer was this really natural progression that I wasn't expecting. I actually started a completely different business with my old business partner. and In that business, my job was to build the websites and do the marketing. My business partner's job was to build the affiliate partnerships and really kind of handle the the money side of things, getting all the customers into into these websites we were building, this whole affiliate company. and so I started designing infographics.
00:10:17
Speaker
for the marketing play and the infographics were just taking off left and right. And so about, I'd say three or four months into this full-time focus on this completely different business and all these affiliate sites and building all these infographics, I walk into my business partner's home office where we were working out of at the time his townhomes guest room to start the workday. And he says, you know what? I thought of a really cool name last night, killer infographics.
00:10:47
Speaker
And the domain's available. Let's buy it and figure out what we're going to do with it. So we buy the domain and we also bought submitinfographics dot.com. We loved Killer as a name, but in 2010, which is when this all started, ah SEO really considered your domain name. And if your domain name had the keywords in it, you were more likely to rank. And we wanted to rank for submit infographics because we wanted to create basically a big database of infographics, a directory where people could upload infographics, have those infographics reviewed by us, get backlinks for their infographics, have embed code put in there for other people to share their infographics. Basically like one big place, one catch-all for all the infographics out there. That was the original idea.
00:11:32
Speaker
Yes, and the community could rate it as well. And so that was the original idea. It wasn't even meant to be a money play. It was something that we thought would just be really fun. And we could use it to also post our infographics that we were building for the 20 websites we had. And then a couple of months into that, we get a email from somebody infographics we had we had given some negative reviews on. And they said, if you think you can do better, we'll hire you to design our infographics.
00:12:02
Speaker
We weren't making much money at the time. We're full time. We both had mortgages to pay. So I jumped on it. I said, yes, I'll start designing infographics for these people. At the time they were offering us 300 bucks in infographic, which is way too cheap, but we didn't know any better yet. And we are churning them around really fast. They weren't high quality at the time. We were really in 2010, you could throw the name infographic on anything and it would succeed. And so we just started designing infographics for this global agency that was hiring us. And in our first quarter of doing that, which was Q4 2010, we designed 14 infographics. And then January of 2011, we suddenly got 40 orders in that month. And then every month after that, it went up and up and up. So we hit a point where I said to my business partner, you focus on the other websites, I'm going to focus on killer,
00:12:58
Speaker
let's see which one wins in the next six months. And within six months of me focusing on Growing Killer and him focusing on the websites, it was just abundantly clear. The websites, because SEO takes time, they weren't growing at the speed we needed them to.
00:13:15
Speaker
Had we had a two year runway, we could have made that very successful, but we didn't have that two year runway. And the infographics side of the business was growing so fast that we were hiring people so fast. I mean, we were literally at a point where we were suddenly making $40,000 a month on infographics.
00:13:34
Speaker
And by six months in, we were averaging 60 to 70,000 a month on infographics. So we put aside all the other websites, sold a couple off to some companies that wanted to use them and went all in on killer and i wanna say june of twenty eleven and once we went all in we hit our first million by i wanna say the end of twenty twelve we had our first million. ah One million dollar year in revenue and just every year grew and grew and grew beyond that.
00:14:07
Speaker
eventually growing to a team of 35 people and working for Fortune 500 clients ah and really creating the space, creating the space not just for infographics but specifically for visual communication. Infographics are just one part of visual communication and because my passion's film We added motion graphics in 2012 as an offering, interactive infographics in 2013 as an offering, and by 2014, we were basically delivering about 12 to 15 different types of visual content, all rooted in the concept of visually communicating information to your audience.
00:14:49
Speaker
so that your audience isn't taking the time to read because nobody does take that time anymore. And so that you could capture their attention in a world inundated by memes and social media content that's just taking all of their attention away from us.
00:15:04
Speaker
So really we just focused on how do you get to people as fast as possible in the marketing and advertising space and visual information gets to the brain 60,000 times faster than any other form of communication that exists. So that was our niche. That was our focus. And over that time period, I became an expert in visual communication. Now I speak on it at about 30 conferences a year. I have 20 courses on LinkedIn Learning, all about visual communication, visual strategy. I have a book called Killer Visual Strategies that is a best seller in the space of visual communication. And really, it's just it has become that perfect passion for me because it It's that it's film and film, which is visual storytelling and marketing mixed together. Those are my two passions. And that is I accidentally stumbled into the perfect world where I could do those two things every day. So it's just great. I watched the journey unfold and it was great to see. But I don't know is were most of your clients brands? Yeah. Yeah. Did you get hired by agencies very
Power of Visual Communication
00:16:13
Speaker
often?
00:16:13
Speaker
In the first few years, we were only hired by agencies other than we were definitely hired by the ah the public sector as well. But outside of that and outside of nonprofits that we were donating our work to, we were primarily hired by agencies. But our pricing continued to increase because our process and quality continued to increase and our talent continued to to increase.
00:16:39
Speaker
We started hiring better talent. We started really focusing on a full service mindset for our clients. and I would say that started around 2013 when we landed Microsoft. They knew that we were pretty cheap at the time and they knew that that meant that they were going to have to teach us how to be better providers to them, better partners to them. and so Our first couple of projects with them, we probably did for a 10th of the cost of what they should have been.
00:17:09
Speaker
not knowing any better. But we learned so much as a result of that, that we became such a better company because of that, because they were willing to risk their outcome on us, knowing that they'd have to do some handholding. And by the time they were done with that, they had molded us into a firm that could serve Fortune 500 clients. So we grew from there and suddenly became a company serving really the global 2000. And for the last five years of the company, our top 20 clients were the fortune 20, the top 20 companies in the fortune 500 list. What were they buying specifically from you? Is this internal sales? Like I need, we have a new developer kit that we want you to install in all your manufacturing stuff. Is it salespeople to,
00:17:58
Speaker
you know manufacturers, is it more client i mean customer focused? What was the primary job? It was primarily marketing content. So it was primarily B2C, sometimes B2B depending on who the the customer was, but in the end it was about marketing to their end customer. And so they'd often come to us with a challenge. They needed to communicate a new product offering, a new service offering. They needed to communicate their value proposition better to their customers, anything like that. They'd come to us with that key problem and we'd identify a full visual strategy to solve that problem. So in the end, you could look at it as content marketing, but I always referred to it as visual content marketing. It was about how do we create the full content ecosystem that connects with your audience at every place your audience is going to be while pulling them back into your conversion funnel? And how do you do it in a way that's going to capture their attention instantly? And statistically, 91% of modern audiences
00:18:59
Speaker
seek out visual content as their primary, secondary and tertiary forms of information delivery. They want to see a video first. That's the number one thing audiences look for is a 90 second informational video about a brand or service.
00:19:16
Speaker
Now that's actually kind of dwindled down to about 45 seconds that they're they're really wanting to see. It can be a 90 second video, but you really have to get that value proposition and call to action out in the first 45 seconds. So they're seeking out that they're seeking out ebooks, they're seeking out infographics, they do not want to read.
00:19:33
Speaker
they don't want to read about your product or service they want to have the information fed to them spoon fed to them and that's a visual content does so we would create that full ecosystem to educate the end audience and bring them into that conversion funnel and this would often include branding as well and brand strategy for any new product or new service offerings. So naming that service, creating the logo and brand identity for that service, it really built out into that full-fledged um end-to-end level of creative content. This podcast could easily turn into a strategy podcast right now. I'm so yeah i'm so tempted to go,
00:20:12
Speaker
I'm definitely having you back on because the strategy around video and strategy around what consumers clients and all that kind of stuff need and want the most is a fascinating conversation in of itself. Well, God, I'm tempted to go there, but we're not. We're going to talk about mergers and acquisitions.
00:20:31
Speaker
We just lost everybody. I'll be back for the other one later. When did you think about an exit strategy for killer?
Structuring for Sale: Insights and Strategies
00:20:41
Speaker
It's a good question because there were multiple iterations of this. When my business partner, my old business partner and I originally got together, like I said, we had a different business model. That business model was perfect for the two of us because our plan was a five year plan. We had created a business model with the agreement that we were going to sell it within five years. So when we pivoted into a full service agency, that created a friction point because
00:21:11
Speaker
It's hard to sell a full service agency. And we had two very different visions at that point. My vision was let's grow this agency and see where it takes us. Still with the idea that one day it could be acquired. But my old business partner had only signed up for about a five year plan. And he knew that an agency was going to be a 10 year plan because he was very realistic about these things. And so it created a bit of a friction point for sure. I mean, he stayed along for the ride as long as made sense. But in the end, it just wasn't going to work out because of the way I wanted to grow the company if we were going to take it to market in the future. But there was always that idea.
00:21:53
Speaker
that it would be taken to market. And so I would say about 2015 or 2016, I read the book Built to Sell. And Built to Sell is a great book for anybody who has a service-based business. And one of the reasons it's great is because none of us have time to read when we have a service-based business. And this book I read in three hours, and I'm a slow reader. It's a very easy Very, very easy read. But the main point of that book is what you said at the opening of this episode, which is whether or not you want to sell your agency. If you build it with the idea that it could sell one day, you're going to make a lot of different choices than you would make if you weren't planning on selling it. You're going to make choices that honestly make it so that the agency doesn't rely on you as much so that if you get hit by a bus tomorrow, the agency can still run without you.
00:22:49
Speaker
and Holy cow, that changes every single decision you make going forward. So I took that to heart and really at that point said, I'm building this company to sell. And I told my team that that's how we were approaching it. It wasn't, hey, we're going to sell this company, but we're going to build processes and we're going to product ties our services in a way that make it so if I die tomorrow, you guys all still have a job. So I got full team buy-in as well. And we also hired a coach to help us really get to that vision as well as a team, which drastically changed the entire approach to the company in so many ways. It led to the best possible team, the happiest team, because when you're building to sell, you're also fully committing as a team to your mission, vision, and values. And that changes who you are as a company inherently. It changes how you manage and how people expect to be managed as well. I think so often, tell me if I have this right, but my experience is people can get on board as teams, right? Staff can get on board with a variety of different things. They just need clarity. Yes. Clarity, consistency, and discipline are really makes people happy. And when you have built to sell or some other you know kind of thing that creates a North Star and every decision gets measured by whether that takes you further toward that North Star or not, then it makes clarity and clarity makes people happy because there's predictability.
00:24:19
Speaker
Exactly. And that was actually in 2015, we set our five-year BHAG, the big big, hairy, audacious goal. And our five-year BHAG was to have some form of an exit within that five years. And that form of an exit could have been an acquisition. It could have been a merger. It could have been a partnership, for instance, merging with a PR agency or something like that. It also could have been an acquisition of the team acquiring the company. So we had all these ideas, but we knew based on this five year goal that we had to hit certain business metrics to build the value in the company to be able to achieve that goal. What's the digest version of built to sell and the coaching that you went through? What did you have to do to get killer set up for the market?
00:25:11
Speaker
The first thing we did was we focused on documenting our process as clearly as possible and getting everybody on the team fully aligned on executing that process exactly the same way every single time. So we made sure that the services we offered every single service fit the same process. If it didn't fit the process, it wasn't a service we would offer. So nothing could take us away from that exact process that we were following every single time.
00:25:41
Speaker
The next thing we did was in ensuring that process, it allowed us to productize our offerings because we could always say to our clients, as long as we follow this process, this is one flat package price and having a flat package price gives you predictability. most agencies charge hourly and when you charge hourly you end up with unhappy clients who feel like they might have been gouged or you you end up chasing hours you end up trying to sell just to hit this certain hour mark you have to hit every single week and it leads to just this constant grind by having flat based pricing on every single product for instance the average infographic was $4,000 at one point it eventually grew to actually about $8,000 for an infographic because of the level of work required to create an infographic that stands out in today's marketplace. We had three tiers of motion graphics. So you could buy a standard tier, you could buy a mid tier, or you could buy a really high level full animation tier and very clear distinctions with each one. So step one was really
00:26:47
Speaker
making exceptionally clear parameters around every single offering so that also we could keep our scope very, very secure at all times. Step two was putting that out into the world, advertising it very clearly for every potential customer and our competitors saw it too and we didn't care because that holds us accountable. So putting an accountability out there in the market so that those products were so clear that anybody who came and bought from us knew exactly what they were getting. They had a strict schedule. They knew about, they knew when everything was going to be delivered, et cetera.
00:27:21
Speaker
Now, step three was bringing in a coach that could focus us specifically on the Vern Harnish mindset of scaling up. So scaling up scaling up is a book. There's another book out there called Traction. they're They're both books that are these methodologies on how to run a team and a company regardless of the industry you're in. And they both have the schools of thought that you can prescribe to if you're gonna follow the traction school of thought you have to follow it to a tee if you're gonna follow scaling up you follow that to a tee but they're all about creating full accountability systems within your company so every single employee knows exactly what their specific goals are for the quarter and for the year. They know exactly what steps they have to take to get a raise. They know exactly what steps they have to take to get a promotion. They know exactly how what they're doing is going to track to the company's success. But when you have a coach, this independent third party,
00:28:15
Speaker
who meets with your team and you every single quarter or every single half, it actually builds this really cool rapport with your team because that coach is holding you accountable in front of them and holding them accountable in front of you. And so you all start to build this really good kind of game plan together. It's it's really fun. And we all call his name is Coach Keith, our coach ah Keith up keys located in Vancouver, Washington. Coach Keith was just this person who constantly brought us back on track if we were sliding off track. Our first year with him, we doubled our revenue. So I mean, to double revenue in a year when you're already a multimillion dollar company, that's huge. And I mean, we just continued that growth pattern with him.
00:29:01
Speaker
Having ah a coach like that, having a business coach, I think is such a huge benefit to any company, especially if you want to sell your company because that business coach is going to help you make the hard decisions and there are going to be very hard decisions that have to be made when you want to take your company to market. And these are coaches with a particular expertise in going to market, right? Where they're really setting you up. I love that you started out answering my question, not with numbers, but with process and documentation and average, like these other fundamentals that are more important to do first. And then, but when you get to the numbers and you're thinking, okay, what's our evaluation? How are we setting up our books so they didn't make sense and all of those kinds of stuff. Does a coach do both of those things?
00:29:43
Speaker
A coach can typically when you're looking for a coach, you look for coaches that are either traction coaches or scaling up. Those are the two methodologies that exist out there to follow in scaling up. ah You might look for something called gazelles. The gazelles coaches out there are scaling up coaches.
00:30:00
Speaker
Now, they can help you from a high level on numbers by saying, let's create your revenue goals for the year. Now that we know your revenue goals for the year, how much do you have to sell every week to get to this? How much do you have to sell every quarter to get to this? How many new customers do you have to acquire? So they'll really break up those goals for you by the year. But when it comes to then setting up your books for a buyer, this is where you need to bring in a broker. I am just so behind the idea of getting a broker. They are worth their four to 8% commission fee by far. And the reason they're worth it is because if you go to market without a broker, you're the one negotiating on behalf of yourself, which could really work against you if you need to have a strong arm bad cop in the mix.
00:30:49
Speaker
Your broker gets to be the bad cop while you get to be the good cop. and Brokers know how to go through your books and really build out your numbers in a way that shines, that shows everything at its best. and that's the That's the thing. Your books have to be bulletproof because you're going to get an initial offer and then you're going to go through diligence. The point of diligence is for the buyer to come back and lower the offer at the end.
00:31:19
Speaker
And you've just spent two or three months in diligence. You don't have any more buyers because you've taken yourself off the market. And so if they're going to bring down that offer at the end, you're kind of in a really bad place now. Now you just have to say yes. And it's your own damn fault because you didn't have clean books to begin with. Having very clean books is exceptionally important and you need to have years of clean books. You can't just have one year. and Okay, so you've set up the books, you've got your ah processes down, you've got your positioning and everything is just perfect.
Acquisition Process and Challenges
00:31:53
Speaker
you You got transparency, you look good, you have numbers that are falling in some methodology where evaluation is understood by many people. Where do you go? like What's this what is this like shadow dark market thing? and are do Are there just a bunch of people out? like What is this? Is it a two-sided marketplace like Airbnb or something?
00:32:12
Speaker
but You know, that that was the biggest question I had starting all of this. And you'll find that different brokers are going to give you different answers. We interviewed about 100 brokers starting in 2017 at the very start of 2017. We didn't hire a broker until the start of 2018. Now the broker we hired, one of the reasons we hired him, his name is Nat Burgess of Tech Strat. I got to give him a shout out because he, his close rate is phenomenal. And there aren't many brokers out there that are good at selling agencies. And he, we were his first agency he sold. Since then he has sold so many. He's just a rock star at it. He had never even tried to sell an agency before us. So in any event, here's his process.
00:32:55
Speaker
The first thing that we had to do was create something called a confidential information memorandum. Now, normally what you do is you take every single thing that a buyer would want to look at during diligence and you send that to your broker.
00:33:12
Speaker
and your broker's going to dig through all of that and produce a confidential information memorandum for you. We produced it ourselves instead, and that's because as a visual communication agency, we knew that producing a beautiful document would actually set us apart from everybody else and show off our talents right off the bat. The the sample is the sale.
00:33:36
Speaker
Yes, exactly. A confidential information memorandum is usually about 60 pages. If you can imagine a funnel, it's kind of like starting at that 40,000 foot view, that large, you know, that very large part of the funnel and slowly moving narrow, narrow, narrow, narrow down to a five foot view. So you open it up with this 10,000 foot view. Here's who we are. Here's why you matter. Here's our value proposition, our our key differentiators, our core values, where we are in the marketplace. Then you talk about what the actual market is.
00:34:10
Speaker
How big is the slice of the pie out there for you? How much more can you grow? What is your potential? Then you start talking about every single team member. Who are they? What do they bring to the table? Because a service agency, half of their value is their talent. So for instance, we talked about our team. We also talked about our average tenure. The industry, but the design industry,
00:34:31
Speaker
average tenure is only six months. Ours, six and a half years. So you know that's a value proposition right there. So we put that out there. We compared us to the marketplace and showed where our weaknesses were. It's like a big s SWOT analysis. We showed where our weaknesses were, but where our strengths were and our solutions to improve our weaknesses or how an acquirer or a merger could improve our weaknesses. And then you get into the numbers and you give years of numbers. So I had to put a five year P&L in there. I also did a timeline from our launch in 2010
00:35:10
Speaker
to that date, showing every major win that we did, every change we did to the company, everything, a full visual timeline to really stand out. And really, it's about giving them a lot of information upfront.
00:35:23
Speaker
Once you have that confidential information memorandum, a CIM or a SIM, once you have that in place, then you identify every potential buyer you can think of with your broker. and Your broker literally cold calls them. and so and they're They're saying, i got so I got a great deal for you.
00:35:42
Speaker
Exactly. I got a great deal for you. Do you want to learn more? If so, sign this NDA. So then they sign the and NDA, they get the confidential information memorandum. So we picked out about 150 potential acquirers or partners to merge with or investors. We looked at all of them. So we picked out about 150 of them. Then of those, we had about 40 sign the NDA and look at the comp look at the sim. And then of the 40 that signed the and NDA and looked at the sim, about 25 said, okay, I want to talk to the CEO. So then I got on the phone, talked to these people, or in some instances, we had a quick call and then I flew to them.
00:36:25
Speaker
to talk to them. There was one day where I happened to be at my parents' home in Cleveland, Ohio, and got this last minute call saying three people, three different companies in New York City wanted to meet with me immediately. So I flew out to New York City at like 10am, flew home at 10pm after going uptown, downtown, midtown, just all over New York City, meeting with three different PR agencies. And so that initial call is kind of what gets them interested. Do they want to learn more? And if they want to dig deeper, then it becomes some sort of in-person meeting to see if there's a fit. And then it becomes, okay, we've seen all of this. Here's what we would offer. And we ended up starting this process. I believe we set out the initial calls to people. The initial cold calling started in September of 2018. It was mid-October when I was doing those in-person meetings. And by the third week of October, we had multiple offers on the table. And so then it became who's the best fit, who works best for our values, who who
00:37:32
Speaker
is going to bring us to the level we want to get to as a company, who's going to ah really value what we bring to the table, but also challenge us to do better and bring stuff to the table that gives our clients better services as well. You're thinking about this because I think it's important to talk about when you're being acquired, you're not just getting money and running, right? Correct. You you got to work for them. Basically, it's like a signing bonus. And then you get maybe some cash over time. But it's all earn outs, right? Like you went from being an entrepreneur to now working for somebody. Exactly, exactly. And that's, you know, all of the offers we were given, but one were earn out structure offers where it was here's the final value we think that you're worth, which is usually a multiple of your EBITDA. So here's the final value we think you're worth. We're going to pay you 60% upfront and 40% over the next three to five years if you hit certain metrics. But the deal we took was very unique and it's actually one of the reasons we took it. It really excited us. It was, here's what we think you're worth. We're going to give you most of it in cash and the rest of it in ownership because we're buying 11 different agencies and creating one big agency out of them.
00:38:51
Speaker
Which at the time, it wasn't clear that we were going to be creating one big agency. At the time, we were going to they they were going to focus on keeping all the agencies separate as sister agencies. But either way, it would still be under one masthead. So the concept was really, you are sticking around because, yes, you had this big cash buyout, but now you're also an owner.
00:39:13
Speaker
in this brand new project. And as a result, you know you're incentivized as an owner, which is so much better than any type of an earn out because with an earn out, people call that golden handcuffs. They're just waiting to take off those handcuffs. And most people, it's death by a thousand paper cuts and they just walk away. They don't want to be a part of it. They just take that upfront cash and leave, which usually leads to the agency imploding.
00:39:39
Speaker
With this focus, it was and still is awesome because you take all these talented CEOs across all these complementary agencies and you make them all business partners, essentially. In COVID, we came to this realization that we needed to be one brand, which is the brand material now. so it's All that changed was one name.
00:39:58
Speaker
in the end. The the way everything operated um and operates is still the same. You have just these this great entrepreneurial spirit among everybody at a company with phenomenal values really working to build everybody up and help them grow. it It was honestly the best thing that could have happened when you think about the ways in which agencies are purchased. This one really was different and unique um in that sense. Is that a trend that is growing for that kind of a deal or is that just a and kind of very rare circumstance?
00:40:30
Speaker
You know, I honestly don't know. This is a trend that is typical of specific PE firms. So the PE firm that owns material, this is how all of their acquisitions go. So some PE firms really focus on doing this because they want you to keep having a stake in the game. That's how they can really ensure that their investment is going to yield success. So I think it's a smart way to go. I think that the PE firms that just come in and just start trimming the fat and really they never just trim fat, they cut right in and cause a lot of bleeding usually. Those PE firms can really ruin a company and ruin an acquisition. So the way this deal structure was set up was very altruistic. it was very I hope that this is how deals go going forward for agencies, in other words. and PE for a Mimi private equity firm. And yeah what how can you shine some light on the value they get out of it? is Are they getting talent? Are they getting IP? I mean, I kind of listed some things at the beginning of the show too. Is there something that I'm missing? Consolidation? What is it? it Access to clients or something like that?
00:41:36
Speaker
it It's all over the board depending on depending on their kind of final goals. So for this specific setup, the goal was we have all these niche agencies. They're doing great in their niche, but their clients want more. So rather than putting their clients in a position where they have to go to 20 different agencies to get a full rounded set of services, such as you know starting with insights and research, leading all the way to customer loyalty programs. That's a very broad range of services across the board and everything that has to happen in between that. Rather than having to hire a bunch of agencies for that, how do you create one go-to shop without destroying what makes these agencies great? And so that's kind of your classic roll-up.
00:42:20
Speaker
if you will the classic i'm gonna buy a whole bunch of agencies and merge them into one big team that's oglevie is oglevie started as a roll up the biggest agencies out there started in one way shape or form by acquiring a bunch of small agencies and bringing them all together and so material is now.
00:42:39
Speaker
a world-class, amazing agency that can compete with the likes of an Ogilvy because they did the same thing. Sometimes, so I'll give you an example of one of the other offers we had. That was a PR agency that wanted an in-house creative team. And that's the more typical acquisition that happens with companies like ours. It's it's bringing your creative team in-house to help support a larger entity. that has you know your clients come into them, and they're going to so they're acquiring your clients too, but they're mainly acquiring your talent. That's really what they want there. and In a lot of those worlds, you already share the same clients anyway, so it becomes a great outcome for the client as well. The amount of client overlap that we had with all of the other agencies within Material was just crazy. and Material bought PR agencies, they bought insights and research firms, product design companies, ah SEO companies. I mean, they really went through the gamut and customer relation firms
00:43:43
Speaker
to create this one-stop shop without moving away from the niche expertise. Yeah. And that's an interesting thing where you're talking about having the crossover in clients is actually a good thing because if find' if I'm reading you right, they're not going to run. Exactly. Yeah. So normally when you're thinking about this, is you want a clientele that doesn't overlap. But in this case, it's actually good because of the service nature of the whole thing and making clients feel safe and trusting.
00:44:09
Speaker
Exactly. Okay. Wow. This is such a good show. This is like five shows and one. ah So what about if you have, and did you have any business partner? Did you know you do have give any of your team equity? Did that play into that? Would that make it more complicated or was that not a factor?
00:44:25
Speaker
It did make things more complicated and it did play into it, but it was the right level of complicated. So I had a, the business partner that I founded the company with, he exited in 2017 before the company was brought to market. But prior to that, we had given a small percentage of ownership to our executive team. So each exec had a minor share in the company. And the reason we did that, we told the execs at that time,
00:44:50
Speaker
was in a merger or an acquisition, we need them to stay for three plus years. They can't leave before that three year period. And so we wanted to give them some skin in the game to do that because they're the leaders of the company. I mean, they deserve some reward as well. They've brought the company to this space. They've helped shepherd a company that started on seven hundred and fifty dollars and grew multi-millions of dollars, they helped grow that. They helped do that. all My whole exec team, all three of them, when they started, they started as interns for me. That's great. So they went from unpaid, I mean, they they were paid like 250 bucks a week for 10 hours a week to owners in this business.
00:45:33
Speaker
And then the other thing that you have to do is you have to consider the team as a whole. Everybody on the team also got a bonus when the deal closed. So when you close the deal, you set aside a certain amount of money that is going to go directly to the team. It's usually a percentage of the deal, but that percentage is is up to you.
00:45:54
Speaker
the Because we were working with such ah a great group that was buying a bunch of agencies, they helped teach us how much money to set aside. So they gave us a really good idea of how much to set aside. I think we set aside about 10% to um give to the team. And that was a bonus that the team got at the end of the first year. So that kept them around for the first year as well. But it also, they helped us get there. And so it was making sure that that team, that the team was rewarded as well. And the other thing that I think is really important in all of this is when you have these structures, when you have a lot of owners where you've got three execs with a minor share, you do have to kind of consider that going forward, how that might impact
00:46:37
Speaker
the merger, how that might impact the next
Post-Acquisition Reflections
00:46:39
Speaker
three years. Are they going to get golden handcuffs as well, for instance? Or are you going to find a way to consolidate everybody into one? So considering we had ownership in the roll up and still do, we consolidated myself and my my execs into one business structure. And that business structure is what has the ownership because their shares were just too small to make accounting easy for the parent company.
00:47:06
Speaker
But the other the other big thing that I think is really important in the world of getting your business acquired is the diligence period. The majority of deals die in diligence. It is a roller coaster ride where every single day you are asked to send something new and random to to the lawyers looking through everything that you have to make sure you're a legit company. So the acquirer's lawyers are going to throw one curveball after another at you because they want to find a reason to tell you that the value they're going to give you in the end is less than what they offer you. So like we were getting these requests for contracts that were 10 years old. their Their job is to find problems so that they can use it against you.
00:47:51
Speaker
Yes, and they want to find liability as well because what they don't want to do, if they're buying you, they don't want to acquire your liability. So they want to make sure that they're saving their client, which is the buyer, from any potential lawsuit that could be on the horizon, for instance.
00:48:06
Speaker
So before we even enter diligence, we set up what is called a data room. And this is what a broker helps you do. A data room is an online server, you know a Dropbox, basically, that has all these different folders of every potential thing a buyer might ask for so that when they ask, you can send it within 15 minutes of the request. Because if you take days to send something to them, that actually is a red flag to them. They think you might be lying about something. You might be hiding something. You're not as organized as you said you were. And so your value goes down. So we had it constantly at the ready. And when we were going through diligence, it was supposed to be a four month diligence process. We were done in six weeks because we had everything. And during that time, they were going through diligence with like four or five other companies. All of those deals died.
00:49:00
Speaker
We were the only deal that stuck because we had all of our ducks in a row. It's so important to have that during during this process. How much more did you get than what you were asking for?
00:49:11
Speaker
In reality, we ended up with 33% more. Congratulations. It doesn't surprise me at all having watched your career and you and hearing your ice cream story from 17 years old. Okay. So you have been, this is a crash course in being acquired as so much good information. There must be something you wish you had done differently. So if you were doing this all over again, what do you wish that you knew beforehand that you know now, anything you would have done differently?
00:49:37
Speaker
Yeah, yeah, there's actually a lot I would have done differently. Post acquisition, I feel like I took my foot off the gas a little bit because I had been running a mile a minute. getting When you're trying to get your company acquired and you're trying to run the company at the same time, it's exhausting.
00:49:54
Speaker
you can't let your sales drop. If your sales drop during diligence, and diligence is a full-time job, if your sales drop during that time, again, that's another reason for your valuation to go down. Or they might walk away entirely if they see that you can't be in two places at once. Your company can't run without you. So I took my foot off the gas a little bit, and I think I got a little too excited about all the changes we were going to make, thinking that those changes would lead to instant growth. And the thing is, is we all kind of believed that within within the mix and started to learn very quickly that each agency had a different process. And I think that there were points where it was a little bit easier to just
00:50:40
Speaker
sit back and say, okay, we're just going to do exactly your process versus fighting, fighting for ours, or vice versa. There were times where I got way too hard headed when I had much smarter people than me telling me what we needed to do and I didn't listen. So I think that's a big thing too. In in the end, Killer was the smallest of the companies that were brought into this family. And the other companies, such world-class amazing companies with amazing leaders. And I pushed back too easily, too quickly on critiques that they would give me. Because when you're in this moment where suddenly you're not running your company anymore, yet you kind of are, but now you have a whole, what feels like a board, advising you, managing you,
00:51:24
Speaker
telling you what to change. It feels so overwhelming and it is a huge burn to your ego. And I was so lucky that the people who are doing that for me, the the leaders who were helping to lead me, were so patient with me.
00:51:41
Speaker
But man if i would have kind of sucked it up a lot earlier and listen to them a lot earlier i think that everybody would have been happier for it because they gave me golden lessons i think i learned more working for and with. folks at Material than I learned in the 10 years running my own company. It's amazing. So I guess that's really what it comes down to. When you're acquired, egos are going to get hurt and most likely it's going to be yours.
00:52:12
Speaker
know what hills to die on. Some hills are worth dying on. Some fights, you know, sometimes you should push back, but I pushed back on the wrong things. And again, I look back at it now and I think, wow, I had the most patient advisors ever. And that's how I look at them. The owners of these other bigger agencies, I look at all of them as advisors. so patient with me, so gracious with me. I think that if they were talking about me, they probably would not say that I pushed back hard at all. But I look at it and I'm like, man, I was a jerk sometimes. That's hard to believe. People are hearing this and they are absolutely going to want to talk to you and get some more of advice and more details. What's the best way for them to find you and to reach out to you?
00:52:54
Speaker
Yeah, check me out on LinkedIn. It's just LinkedIn, Amy Ballett. You're welcome to email me. If you connect with me on LinkedIn, my email address is right there, but it's AmyBallett.com. If there's a contact form, you can fill out right there and we can start emailing back and forth. I will say, because I spent so much time having my to-do list basically managed by email, ah somebody once said your email is a to-do list that somebody else makes for you.
00:53:23
Speaker
because my life was basically everyday i have this great grand plan of what i was gonna accomplish for work that day and then i open my inbox and have a hundred and fifty emails and suddenly my day would be derailed now that i am what i like to say call semi retired i check my email once a week and i check my linkedin in mail once every two weeks. So please know that if you email me and it takes a couple of weeks to get back, that is why one day I'll get back into the swing of things. But this past year, 2024, it's been my very first year of not working for anyone, not having clients. My only focus is creating more LinkedIn learning courses and doing my public speaking. And because of that, I'm no longer tied and tethered to email like the average agency owner. And I really do love it.
00:54:13
Speaker
Well, we need to make an infographic on you and your story. You're such a great case study for this conversation. I'm so glad to hear that you're enjoying the quote unquote reward years now and good on you. And thank you so much for the generosity that you've just displayed here and just giving away this really detailed information and being an open book to my questions. This is going to be a great episode. So thank you so much, Amy Balliet, for coming on the show.
00:54:41
Speaker
Happy to be here. Thanks for having me. I've been wanting to talk about this topic with other agency folks for a long time, so I appreciate the ability to share the experience. And to be continued for like three or four different episodes on another topic. I love it. I love it. Thank you for listening to Crossing the Axis with James Keblis. If you're interested in joining the conversation or have a topic you'd like covered, please drop a note at keblis dot.com. That's K-E-B-L-A-S dot com.